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Global Energy Advisory – 20th April 2018


The plot around Canada’s Trans-Mountain oil pipeline expansion has thickened to the point that nobody can say anymore whether the project will survive or go under. If the latest remarks from Kinder Morgan CEO Steven Kean are any indication, the latter has become a bit more likely than the former.

In the company’s Q1 financial report conference call, Kean said that the problem with Trans Mountain was not financial but political. The executive referred to Ottawa’s offer to provide financing for the project if Kinder Morgan is uncertain about investing more in it. Yet, according to Kean, what Kinder Morgan needs from the authorities is not money but an end to the political opposition from the government in British Columbia.

Unfortunately, the B.C. government seems set on continuing on the same course. This week, PM John Horgan said the province will take Alberta to court if it passes legislation seeking to reduce deliveries of crude and fuel to its stubborn neighbor.

The fight has drawn in two more provinces as well. Saskatchewan has sided with Alberta, saying it will introduce its own anti-B.C. legislation, although it is not such a major exporter of oil and fuels to the province. In Quebec, opposition Parti Québécois has offered B.C. its know-how in asserting provincial control over the local environment, which B.C. is seeking to do in order to prevent Ottawa from using federal jurisdiction to force it to accept Trans Mountain.

The fight is likely to further intensify. Alberta is ready to buy the expansion project from Kinder Morgan and to turn the taps off for B.C. to punish it for opposing the pipe. Ottawa is looking for legislative ways to reassert its jurisdiction over Trans Mountain in order to be able to twist B.C.’s arm with the minimum pain, apparently. B.C. is at the same time seeking the local court of appeals opinion on the same issue: jurisdiction over the transportation of oil on its territory. And so it continues and the winner remains elusive.

Deals, Mergers & Acquisitions

• Total will buy a majority stake in electricity retailer Direct Energie for $1.73 billion, which will turn the oil supermajor into a competitor of France’s leading utility EDF. The acquisition is part of Total’s diversification drive, which has a special emphasis on gas and electricity generation.

• Norway’s Statoil is considering closing a partnership with India’s biggest energy company ONGC to enter deepwater exploration on the subcontinent. According to an Indian government source, the Norwegian company has been tempted by the increasingly favorable regulatory environment as India seeks to increase its local oil and gas production to reduce its dependence on imports.

Tenders, Auctions & Contracts

• Schlumberger has finalized a contract with Kenya National Oil Corporation for the development of several oil and gas blocks in northwestern Kenya. Oil was discovered in Kenya’s Lokichar region recently, with Tullow Oil and Canadian Africa Oil striking it first. Currently, the two companies share two blocks in Lokichar equally, with Tullow the operator. Another shareholder in the 10BB and 13T blocks, Danish Maersk, sold its interest to Total and Kenya National Oil Corp. is preparing to take a stake, too.

• Ukraine has rejected a gas transit contract offered by Russia’s Gazprom following the ruling of the Stockholm Court of Arbitration on the long-running gas supply and payments dispute between the company and Kiev. Ukraine is adamant that it should remain the key transit route for Russian gas to Europe to avoid the risk of Gazprom turning the taps without affecting European deliveries, which is what the Russian company aims to do with the Nord Stream pipeline expansion.

• BP and Petrobras have inked a preliminary partnership agreement to jointly pursue projects in the upstream, downstream, marketing, and even low-carbon segments of the energy industry. The two are already partners on 16 upstream projects in Brazil.

• Iraq’s Energy Ministry has delayed its next oil tender until April 25, which gives potential suitors for 11 undeveloped oil fields because of issues around the contracts it will offer oil companies. Now the contracts have been picked and the 16 companies shortlisted for the tender have until the 25th to submit their proposals if they approve the terms of the contracts. Previously, international oil companies had complained about the technical service agreements they had to sign as providing for too low revenues.

Discovery & Development

• Chevron’s Wheatstone LNG project off the coast of Australia is producing at rates above its nameplate capacity and its train two is on track to start operating before the end of June. The Wheatstone project, which also involves Australian Woodside Petroleum, Kuwait Foreign Petroleum Exploration Company, and Japan’s Kyushu Electric Power Company, has an annual liquefaction capacity of 8.9 million metric tons of LNG.

• Chevron has announced the start of expansion at its Gorgon LNG project in Australia, which will ensure the consistent supply of natural gas for the three liquefaction trains on Barrow Island over the lifespan of the project, estimated at 30 to 40 years. The Gorgon is one of the largest LNG projects globally, so far worth $54 billion. The expansion will cost several billion dollars to ensure long-term supply to the 15.6-million-ton liquefaction plant.

• The Permian is on track to break its own oil production record, with the Energy Information Administration expecting the play to yield 3.11 million bpd this month and 3.18 million bpd in May. This will be made possible thanks to the fast addition of new wells: last month, new DUCs in the Permian totaled 122.

Company News

• Denmark’s largest pension fund has announced it will pull out of oil and gas investments. The PKA fund currently has interests in 35 oil and gas companies but will exit them all for failing to uphold the Paris Agreement on climate. The fund previously pulled out of 70 coal companies while raising its exposure to renewable energy consistently.

• Two Chevron employees have been arrested in Venezuela on charges that have yet to be divulged by the authorities. There is an ongoing crackdown on corruption in the troubled South American nation but until now employees of the few foreign companies still maintaining a presence in Venezuela were not being targeted.

• Liberia’s President has ordered an investigation into Exxon’s acquisition of an offshore block on suspicion that the company knew parts of the block were owned by Liberian public servants who awarded themselves these assets illegally. Exxon was apparently worried about the ownership structure of the block, so it bought it from Canadian Overseas Petroleum—a partner in the block—rather than from the Liberian partners.

Politics, Geopolitics & Conflict

• Cuba’s President Raul Castro retired this week and will be succeeded by his second-in-command Miguel Diaz-Canel.

• In Mexico, the frontrunner for the July election, Andres Manuel Lopez Obrador, has increased his lead to 22 points. Obrador has vowed to review oil contracts with foreign companies if he gets the presidency.

• CIA chief Mike Pompeo secretly visited North Korea ahead of a planned summit between president Trump and Kim Jong Un. Trump said he hoped the summit would be productive, adding that he would up and leave if he felt it wasn’t.

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